Leopold v. Commissioner

HARRY LEOPOLD, PETITIONER, v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT.

Leopold v. Commissioner

Docket No. 8867.

United States Board of Tax Appeals

9 B.T.A. 396; 1927 BTA LEXIS 2607;

November 28, 1927, Promulgated

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">*2607 The Commissioner determined the petitioner's income from a partnership in accordance with the partnership agreement purporting to control the distribution of profits for the year. Held, the evidence was insufficient to overcome the presumption of correctness in favor of the Commissioner's determination.

Louis F. Gosswein, Esq., for the petitioner.

J. Harry Byrne, Esq., for the respondent.

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MURDOCK

">*396 The Commissioner denied a claim for abatement of $1,182.06 of an assessment of income tax for the calendar year 1918. It is alleged that the Commissioner incorrectly determined the amount of the taxpayer's income from a partnership composed of the taxpayer and one other person.

FINDINGS OF FACT.

The petitioner, Harry Leopold, is a resident of the City of New York, and prior to the year 1918 was employed by Louis Siegbert & Bro. of that city, a firm engaged in the business of cotton converting.

">*397 On December 26, 1917, the petitioner and Julius Siegbert, who at that time was the sole member of the firm, entered into a partnership agreement whereby they were to become and remain partners in the business from January 1, 1918, until">*2608 December 31, 1920. It was further provided that the profits and losses made or incurred during the copartnership should be shared and borne, two-thirds by Julius Siegbert and one-third by the petitioner, and that in determining the net profits, interest on the capital invested by each partner should be allowed at the rate of 6 per cent per year.

The partnership return for the year 1918 was prepared from the partnership books by an accountant employed by the firm. The partnership income was reported as amounting to $312,725.83, of which $218,122.54 was allocated to Julius Siegbert and $94,603.29 to the petitioner. The petitioner's individual return reported $94,603.29 as his total income from the partnership. An internal revenue agent who examined the return for 1918 disallowed donations of $5,217.50 claimed by the partnership as an item of expense and determined the net income to be $317,943.33, from which he deducted interest on capital in the amount of $34,067.65, leaving a balance of $283,875.68. Of this amount he allocated one-third, or $94,625.23 as income to the petitioner and added thereto the petitioner's share of interest on his capital amounting to $3,806.90, making">*2609 a total income from the partnership of $98,432.13. The Commissioner accepted this total as found by the agent and allowed the petitioner as one of his deductions one-third of the amount of the partnership contributions as above set forth. By the Commissioner's method the total amount of the petitioner's income was found to be $2,089.67 more than that reported by the petitioner.

OPINION.

MURDOCK: Section 218 of the Revenue Act of 1918 provides in part as follows:

SEC. 218. (a) That individuals carrying on business in partnership shall be liable for income tax only in their individual capacity. There shall be included in computing the net income of each partner his distributive share, whether distributed or not, of the net income of the partnership for the taxable year, * * *

The evidence in this case fails to show that the petitioner's distributive share of the net income of the partnership for the taxable year differed from the amount determined by the Commissioner as representing such distributive share. The petitioner does not complain of the Commissioner's division of the credits for contributions. Conceding that the Commissioner's determination is in accordance with">*2610 the partnership agreement, the petitioner contends that for this year the shares after the deduction of so-called interest were not distributed ">*398 on a two-to-one basis. But the petitioner confines his proof to what was reported and fails to show that he was not entitled to one-third of the profits. We have no reason to believe that the partnership agreement was not controlling. The books were not offered in evidence and we do not know that they show a distribution in any other proportion than two to one.

Judgment will be entered for the respondent.

Considered by MORRIS and SIEFKIN.